Procurement Networks Can Deliver A Strategic Edge

Procurement is not often seen as a strategic function in most businesses. Generally, the focus is on getting the items you need at the right time for the lowest possible cost. But that is changing as more and more scrutiny is being put on the supply chain. With concerns about environmental factors and ethical sourcing, knowing where products come from and how they get to you are also important.

At the recent SAP Ariba Live event held in Sydney, Ben Redwine, the company's general manager for the APJ region, said SAP Ariba handles more commerce than Ebay, Alibaba and Amazon combined. He said this means SAP Ariba's users have a massive opportunity to look across their entire supply chain to not only operate procurement processes as efficiently as possible, but to collaborate more closely with supply chain partners.

SAP Ariba's focus is very much on business to business (B2B) transactions, with about US$1.4T moving across the network each year. Redwine said this is between 1% and 2% of the world's GDP.

Those transactions represent a significant amount of data that can be leveraged as a strategic asset he said.

Alex Atzberger, SAP Ariba's president said that while cost and efficiency are important to procurement, there's much more to it.

"It can drive a greater purpose. You can look at modern slavery, conflict minerals, indigenous suppliers and supplier diversity - there's a lot procurement can actually do to drive change in a larger purpose," said Atzberger.

One of the interesting trends that Redwine has observed is how the B2B and business to consumer (B2C) markets are converging. Marketplaces such as Amazon, Ebay and Alibaba are trying to increase revenues by trying to better service businesses while there's some movement with SAP Ariba customers trying to increase their B2C share.

This is one of the drivers behind SAP Ariba offering integration to services such as Ebay from within their platform.

"I think it's because companies like these, and ourselves, are creating network effects. What happens is you have a critical mass of buyers and sellers and it creates additional value for these companies," Redwine said. "There is a convergence between the consumer experience and the business experience".

With the rapid evolution of these networks, Redwine says companies, particularly in Asia, are leapfrogging ahead. With many coming from a low technological base, they are jumping from old procurement processes straight to B2B networks. While Australia has been seen strong uptake of B2B networks, we are being outpaced by other countries in our region.

B2B networks have the advantage over older point-to-point connections, such as EDI, as once someone is connected to the network they are potentially able to connect to anyone else in the network.

"This idea of individual portals and one-to-one connections in a world that's more and more networked is really coming to the end of its life," said Atzberger.

In terms of better understanding how our businesses spend their money, Redwine said a significant portion of business expenditure was still not well understood in may companies. But the advent of increased computing power and the accessibility of machine learning techniques mean businesses can get far better insights to their entire supply chain in order to better understand the entire procurement lifecycle.

Atzberger noted SAP Ariba has a strong relationship with IBM and their Watson platform. And while emerging technologies are interesting, they need to be applied to a use-case.

"The use-case is the data in procurement. For instance, every contract has information about pricing, about terms. Many of our customers have thousands of contracts. But every time they start a new contract they start from scratch. How can take and be smart enough to teach a bot to understand this information and the context of a contract so that the next time you enter the system you can interact with the system. We've built a natural language processing capability, kind of like an Alexa for contracts," said Atzberger.

Another piece of the puzzle is data from outside your own systems, said Atzberger. But emerging machine learning and AI systems will further enhance this capability.

Blockchain is a hot topic for supply chains and a technology being explored by SAP Ariba.

"Blockchain is ultimately about trust," said Atzberger. "If you look at blockchain it can start to add trust and add visibility and provenance about where an item comes from".

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